Recordati Industria Chim

Good afternoon. This is the Coral School Conference Operator. Welcome and thank you for joining the Recordati Investors Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Miss Federica De Medici, Investor Relations and Corporate Communications of Recordati. Please go ahead, madam.

Thank you, Sabrina, and good afternoon or good morning, everyone, and thank you for attending the Recordati conference call today. I'm pleased to be here with our CEO, Andrea Recordati, and Luigi Lacorte, our CFO, that will be presenting the fourth quarter 2021 results. and the strategy and outlook update for the next three years. They will be running you through the presentation. As usual, the set of slides is available on our website under the investor section. After that, we will open up for Q&A. I will now leave the floor to Andrea. Please go ahead.

Good afternoon, ladies and gentlemen, and thank you for having joined us for the Recordati first quarter 2021 results and the three-year plan update investor presentation. So please move to the second slide, the agenda. The agenda today will take us through our company overview and strategy, our 2021 first quarter results, the key assumptions around the drivers for organic growth, a focus on further growth opportunities, internal and external, and finally, our financial projections for the next three years. So if you can please turn to the first slide of the presentation, slide number three. So let me start with Recordati in a snapshot, in one page, for those of you who don't know our company, to give you a quick profile of Recordati and where Recordati is today. An international specialty farmer group with its roots and legacy in Italy that has successfully grown in international markets, mostly through acquisitions and business development over many years to the point that Italy now counts less than 20% of revenue. We manage the business through two business units, SPC, which stands for specialty in primary care, that accounts for 78% of revenues and includes RX, OTC, and fine chemicals, and our rare disease business unit, which is mainly focused on the treatment for metabolic deficiencies and rare endocrine conditions, that accounts for 22% of revenues but accounts for more than 25% of consolidated EBITDA. Our SPC legacy is in cardiovascular, but we're also present in a number of other therapeutic areas, such as urology, gastrointestinal, anti-infectives, to mention the key ones. We have a well-diversified footprint and strong vertical integration with eight manufacturing facilities, of which two are API production sites, and one is specialized packaging and distribution facilities dedicated to rare diseases. This diversification has served us well in 2020 during the COVID-19 pandemic. Although we were not immune from the impact that COVID had on several categories and markets, our organization was quick to react, ensuring continued availability of our products and the safety of our employees. Despite the disruption, we were able to deliver revenues which were broadly flat versus the prior year and EBITDA and adjusted income that were very closely aligned with the targets that we had set at the beginning of 2020. Moving on to the next slide. Those of you who are more familiar with the business would know that we have a relatively straightforward and successful proven business model, which is summarized on this slide. We are a unique company with a very broad portfolio and geographical footprint that minimizes exposure to single products and markets, and therefore limited exposure to single reimbursement systems. Organic growth is primarily fueled by volume-driven growth rather than price and good exposure to markets with positive long-term growth outlook such as in North America, Latin, Turkey, Russia, North Africa to mention a few. A proven successful strategy of stabilizing key products post loss of exclusivity through active promotion and no major corporate products facing LOEs over the next five years. We are a fully vertical integrated platform from API to commercialization for key products, driving margin and protecting the supply chain. We have approximately 60% of volumes manufactured by Recordati plants. We minimize R&D risk with selective investments, with the majority of our net revenue coming from mature products and products sourced externally via licensing and business development activities. And finally, we have a strong and proven M&A track record to complement and strengthen our portfolio and geographical footprint, but with a very disciplined approach and a long-term focus on value creation, always pursuing a mix of growth and accretive deals. Moving on to slide five, our business model has delivered a consistent history of growth and margin improvement. As shown in this chart, revenue cargo for the past 10 years was plus 7%. and this was achieved through a well-balanced mix of organic and inorganic development. We consistently improved our profitability with strong margin expansion from 25% EBITDA to over 38% target that we had set in our prior three-year plan, reaching 39% in 2020, a margin result which, however, let me remind you, we know was enhanced by the impact that the COVID pandemic has on revenues, but also on the cost base of a company. Moving on to the next slide. So we are planning to keep on doing this in the years to come, maintaining a strategy de facto unchanged from the last restoration of a three-year plan that we presented in 2019. For those, in fact, that are familiar with our company, you may recognize that this strategy slide is fundamentally the same as the one that we shared in May 19. a strategy that we believe remains valid today going forward. We've also confirmed the continuation of our successful strategy with a steady organic growth generated by a well-diversified portfolio and a balanced exposure to emerging markets, enhanced by a creative and strategic deals in both SPC and rare diseases, and leveraged on our capabilities across both businesses. As you can see from the bottom of the slide, we also feel that as a group, we are well positioned and exposed to positive macro trends driving our relevant markets. Moving on to the next slide. In Recordati, we believe that integrating corporate responsibility into our business approach and strategy by uniting economic, social, and environmental aspects will create long-term value for all creation, for all relevant stakeholders. Our commitment to this is summarized in this slide. Given the growing importance of sustainability issues within the company dynamics, we have created a dedicated environmental, social, and governance ESG function with a task of integrating and managing sustainability as an integral part of all the activities and initiatives of the RecordLati Group. Our sustainability strategy is based on five priority areas. For all of them, we have defined specific commitments. Regarding patient care, our attention is focused on access to medical products, quality, product safety, and R&D. As for employees, we're committed to creating even more a safe, responsible, and inclusive workspace. We consider also very important supporting local communities. We want to take conscious action to reduce our environmental impact fighting against climate change, increasing the circular economy, and promoting waste reduction initiatives. Concerning responsible sourcing, we're committed to constantly promoting respect for ESG aspects along the entire value chain. And finally, integrity is our founding value, and we are committed to maintain the highest standards of ethical products. Our remuneration policy is closely involved in our sustainability plan. In order to have a strong commitment, we have included also the sustainability target in our group's management by objective system. The plan represents how we want to create sustainable and shared long-term value. You can move to the next slide, please. So now before we actually move to the three-year plan presentation, I will leave the floor to Luigi to present the 2021 first quarter results. Thank you, Luigi.

Thank you, Andrea, and good morning, good afternoon, everyone. I will take you through the quarter one financials. I will try to do so clearly but also with pace, given that I'm sure everyone is keen to hear more about the three-year plan. And also given that, as you already know from our press release a few weeks ago, Q1 financials are somewhat distorted by stock movements both this year and last. So starting from slide nine, and in terms of key highlights, revenue, as we've already disclosed, was down 10.3% for the quarter at just under 385 million euros. This reflects adverse foreign exchange of 3.5%, and obviously the continuation of COVID pandemic pressures on some key categories, as we saw in the second part of last year, but also reflects the year-on-year impact of lots of exclusivities that we faced in 2020 on pitavastatin and silodicin. But once again, it also reflects an estimated 20 million of stocking in Q1 of 2020, where we benefited from advanced purchases of wholesalers and pharmacies at the start of the pandemic. And we also said a couple of weeks ago, we saw on the other hand in 2021, a level of destocking in some of our markets, particularly impacting cough and cold and ear, nose, and throat medicines, which were particularly acute in Russia, where this portfolio makes up a significant part of the business. To note, we made good progress in the quarter, both on our endocrinology franchise, with revenue of $26 million versus $14.7 million in the same period last year, and also with Eligard, where the integration of the business is on track, and in fact, in terms of transitions from a moving slightly faster than planned, with revenue in Q1 of $16.8 million. Andrea will come back to cover these in more detail later on. The reduction in revenue is obviously reflected into the P&L, with both EBITDA and net income showing a double-digit decline in the quarter. But with margins remaining at robust levels, with EBITDA in particular at 39% of revenue and adjusted net income around 27%, reflecting the impact that COVID also has on our activity spend in the market. Free cash flow in the quarter was 110 million, 21 million higher than same period of 2020, thanks primarily to lower absorption of working capital. Most importantly, despite the lower revenue and the somewhat weaker demand on cough and cold medicines, which we expect to persist for the rest of the year, Our financials are in line with expectations, and as you will see later on in the presentation, our financial guidance for 2021 is unchanged. Moving to slide 10, in terms of key product sales, as you will see from the slide, most of our specialty primary care products which are the ones which were most impacted by COVID and also which had most of the benefit of stocking last year showing a decline. Xanadu is fairly resilient, up actually 3.2% versus last year, and that is driven by double-digit growth in international markets with a decline in in direct where we sell the product directly. International markets were not very affected by the pandemic last year given the longer order cycles and they do represent over 50% of ZanyDeep revenue. This was in part true also for ZanyPress with growth on the international business, which however makes up a lower percentage of the total. And we did have, although we are starting to see the business stabilize, a little bit of pressure in France because of measures introduced at the beginning of 2020. The distortive effect of purchasing patterns across the two years is clear, obviously, on Metoprolol. You will recall Q1 2020, Metoprolol showed revenue growth in Q1 of 30%. and is down 18% in the first quarter of this year. Again, that's comparable. Silodosin and Pitavastatin also, to some extent, reflecting the impact of stock movements, but clearly also reflecting the loss of exclusivity, which they each went through last year. Our view for these two for 2020 remains unchanged, and as we said at the beginning of the year, we expect on both products a year-on-year erosion for the full year of around 10 million euros. To note, Peterbaskin is continuing to grow in markets where we don't face generic competition, mainly Turkey, Greece, and Switzerland. Other corporate products continues to be the area where we see the brunt of the COVID impact, and this is where we're seeing really the effect of the restrictions impacting on our cough and cold portfolio, and also where we've seen the impact of destocking, particularly in Russia. The reduction of 31% is driven by products like Polidex, Sinusofra, and Terriginian, which are significant, particularly in Russia, and some Central and Eastern European market, Lomexine, Hexa spray, and our probiotics. In addition to Russia, we see some of this effect in Italy and France as well. Rare diseases, as already commented, is continuing to grow well with growth in the quarter of close to 10% and revenue of close to 85 million. Clearly, the growth is driven by our Endo franchise, which at just over 26 million grew significantly versus Q1. Now, clearly, this is on the back of the addition of Isterisa, which had no sales in Q1 of 2020, and continued growth of Signifor, which on a like-for-like basis continued to grow at around 10%. The small decline on the base on our legacy businesses really being driven by the weakness of the U.S. dollar in the quarter and the erosion of Panamintin, which as I commented in the past, has started to stabilize but faced competition starting later in Q1 of last year, which offset the growth of pretty much the bulk of our portfolio, as again Andrea will speak more later on. Slide 11. And again, I won't go market by market in the interest of time, but clearly our core European markets reflect some of the dynamics which I've just mentioned and therefore are showing a decline versus prior year, and that really applies to most of the Western European markets. Spain, we're actually starting to see signs of stabilization of the GI franchises, which were impacted over the course of last year. But also, we see the benefit of the contribution that Eligard is making to the revenue in the market, where Eligard does have a significant business position. Turkey is suffering from the tighter restrictions which have been imposed in the country really from the start of this year. You see Turkey in local currency terms showing a mid single digit decline of 5.5% with revenue in Euro terms down 26.7% due to adverse effects over 20% in the period. Russia, CIS, and Ukraine, as mentioned already, clearly reflect the impact of cough and cold weakness, but also, as mentioned, a level of destocking. Historically, Russia, the Russian market, as we see it, has been running with stocks in the channel of between 11 and 13 weeks, and as a result of the pandemic and the economic pressures there, we're seeing the distribution channel moving towards eight to nine weeks of stock. And you've seen the results reflected there with revenue in local currencies down 50% in Russia for the quarter. And we clearly expect some stabilization now in the month to come. U.S. business growing by 26.7% in local currency. or 15.9 in Euro terms, once again, due to the weakness of the US dollar at the start of the year, with the growth driven by both the ELDO portfolio and all of our promoted products, with the exception of Panimitin. Other Central Eastern European and other Western European countries, broadly stable. You'll recall last year, these countries were less impacted by COVID, this being countries where we've established our presence more recently. and also countries where Aligarh is also making already a good contribution and therefore showing a relatively stable year-on-year revenue trend. The same is true of our business in Tunisia, which is continuing to grow double-digit, with total North Africa's revenue down due to delays in import licenses for this year to some of our expert businesses, particularly in Algeria. And finally, our international sales down due to the loss of exclusivity last year of Pitavastatin and Silodacin, which offset good growth, as I've said, of the Lercanidipine franchise. Moving to slide 12 and looking at the P&L, growth profit at 73% is marginally up versus the levels achieved at the end of last year. on the back of improving MIX, but it's also slightly flattered from the accounting of Eligard, which I will remind everyone we account for at the net revenue level on a net cross-profit basis until we transfer market authorization and distribution from Astellas. SG&A cost of $113.4 million. are lower than prior year by four percent really driven as we saw in the back end of last year due to the reduction in selling expenses which stand at 24.3 percent of sales down because of the lower activity levels and spend in the field particularly on the sbc business with G&A slightly up just about 5% as we strengthen our structure behind the new franchises. R&D costs at 10.8% of revenue are up 18.7% versus 2020. A third of the increase is due to the additional amortization charges on both the Endo franchise and Eligard. Another third is due to the progression of clinical trials, both the ones we inherited from Novartis and the ones that we are progressing in our own pipeline, namely the MT8 project. And the other third is due to the strengthening of our medical science liaisons in the field and additional pharmacovigilance and regulatory spend behind the new franchises. As a result, operating income and EBITDA, as mentioned, declined versus prior year by double digits, but with margin levels remaining strong, with EBITDA at 39% of sales. Net income at roughly $90 million reflects, in addition to the operating results, also additional financing charges in the quarter due to unrealized FX losses of around 3.7 million, which compared to a Q1 2020, where we actually benefited from around 1.9 million of gains related to currency swaps that were no longer treated as hedges. Just a final note on the P&L, as you all will know, we completed in April the reverse merger transaction with Rossini & Cimei. And therefore, in Q2, we expect to record the non-recurring tax benefits of $12.9 million that came from that transaction as foreseen in the plan. And as we said at the time, we expect no other impacts from the shortening of the control chain. Quickly on slide 13, which shows our rare disease business continuing to account for roughly 22% of revenue, but around 25% to 26% of operating income and EBITDA, margins levels on both businesses being broadly in line with the levels achieved in the full year 2020. When it comes to slide 14, you will see we've added to our standard quarterly reporting pack an additional slide, which we do plan to also include in our next quarter's reporting, which gives a bit more visibility on the drivers of our cash flow, which we do believe is a key area of strength of the group. Of course, as always, there is a seasonality to cash flows, and Q1 is particularly positive as we tend to pay very little taxes in the first quarter of the year. But that aside, the free cash flow of $110 million is up, as I said at the beginning, $21 million roughly versus the first quarter of last year, mainly due to a lower absorption of working capital, clearly due to the revenue dynamics Intangible assets increased by $53 million in the quarter, with the main items there being the $35 million we paid to Tolmar on completion of the deal for Eligard, and the $14.5 million paid to Almiralt for the flat-oil rights in Spain. And we also, in the quarter, had net share purchases of 43 million euros. Financing flows of 49 million reflecting a new five-year loan that we've taken out to benefit concurrently low interest rates and to increase the average duration of our debt. And finally, before turning over to Andrea on slide 15, you will see our net financial positions remain strong. net debt of 852.6 million is below end of 2020, and is on the 1.5 to 1.6 time last 12 months trailing EBITDA. And with that, I'll hand over to Andrea.

Thank you, Luigi. So if you could turn to the agenda, please, slide 16. So let me now take you in more detail through our two businesses and describe the key drivers of a plan from 21 to 23. I will start with SPC, which today still represents, like we mentioned before, 78% of total revenues and 74% of our EBITDA. So slide 17, next slide. So as you can see from this summary overview on this slide, our presence in SPC is focused on Europe, Central East in Europe, CIS, Turkey, with direct selling organizations in over 30 countries, and with approximately 1,900 strong sales organizations. But we've also an important business that we would like to remind, worth roughly 100 million, which is selling profitably on other international markets via life and source. We have a very broad portfolio across a number of therapeutical areas, Key ones being cardiovascular, urology, eye, and anti-infectives, like I mentioned before. We've got product offering including both RX products, but also OTC products. OTCs being roughly 18% of total SPC. You will see here some of the key brands, which is a combination of products we've developed internally and ones we have acquired on a license from our partners. If you can move to the next slide, please. Slide 18. So specialty and primary care is the fact of the backbone of Recordati, offering a robust and resilient portfolio with no loss of exclusivity exposure in the planned period, and very little exposure beyond that. It grows at 6% CAGR in the planned period, or 3% CAGR when excluding Eligard, with growth across all markets and all key categories in the next three years. despite some assumed FX headwinds in the plan in Turkey and Russia. We will focus our commercial efforts on accelerating growth from the assets with potential, namely Heligard Regilla and the forthcoming launch of RS1, as well as the selected promotion of key OTC brands like Proctoglivenol, Genoxin and Magnesio Supremo. In parallel, through the period, our large and diverse portfolio of established brands in areas like Cardio, Euro, and Gastro are stable or marginally growing post-recent LOEs. We focus promotional effort, exemplifying the robustness and resilience of our SPC business. With this diverse and well-balanced portfolio, SPC offers a very solid and diversified platform with a single-digit growth that can be leveraged with our creative business development deals that complement our capabilities and footprint. just like the recent one with Aligard. Hence, our continued focus on inorganic acquisitions or new licenses to accelerate growth and sustain margins of this part of the business. If you please move to the next slide. So looking into our portfolio by key categories, let's start with the area that has suffered the most, like we mentioned before, due to the COVID pandemic, being the cough and cold and ENT infections therapeutical portfolio. The lack of pathology due to the COVID prevention and restrictions measures has resulted in a decline in our reference markets of roughly 25% in 2020 and almost 50% in the January to February 2021 period. This is actually IQVIA data in volumes. And this has been translated into a significant sales decline of almost 40% of our portfolio versus pre-COVID levels and therefore 2019. This has impacted mostly those markets with a relevant cough and cold portfolio and ENT portfolio, like Luigi mentioned before, being Russia, Italy, and France. We have taken what we believe a balanced view in our plan, in our expectations, of a recovery of a pathology over the next couple of years, following the easing of restrictions and distancing measures and the reduction of the use of protective masks. With our sales progressively recovering over the next three years, starting from the second half of 2022, but still expected to be more than 20% below pre-COVID levels at the end of 2023. Next slide, please. Moving on to the cardiovascular portfolio, unlike cough and cold ENT, our core portfolio of cardiovascular products has shown an extraordinary robustness and resilience throughout the COVID pandemic, with a limited impact of the LOE of pitavaclatin, until 2021, and then low single-digit growth of the portfolio across the Recordati geographical footprint, but also through our international partners, in particular in China, thanks to the expansion driven by our new distributor for the market. We're expecting Pitavastatin and Metoprolol to be relatively stable throughout the planned period, with some growth of Allurcanidib in franchise post tiny press loss of exclusivity stabilization. As you know, our Cardio franchise is the largest cash flow generator, which supports the continued BD and M&A activities of Recordati, and its robustness and resilience is a massive asset for our company. Moving on to urology. Next slide, please, 21. For the planned period, we forecast a gradual, similar stabilization of the sales of Eurorack, Cilodocin, after the initial top-line decline following the loss of exclusivity last year. As you can see in the above graph on the right, we have been able to preserve its market sharing units over the past months and expect to sustain the sales over the coming years thanks to targeted promotion to key customers, as well as calls on urologists with Eligard, and with an opportunity for some further growth coming from Turkey and Central Eastern Europe. Next slide, please. Moving on to Eligard, our new addition to our SPC portfolio. We consider this to be a growth opportunity. It's a great asset that will benefit from our established presence and heritage in urology and that offers the opportunity to demonstrate our ability to reverse the declining trends seen over recent years under the Astellas non-promoted tenure and therefore revitalize its growth. We kicked off promotion in March in certain key markets with very encouraging feedback from our customers. Transition from Astellas has been smooth with our year-to-date sales on track with expectations, and now all key markets are promoting Adegard. Our collaboration is progressing well with Tolmar around the development of a new, easier-to-handle device with expected regulatory submission by the end of this year. And following the expected approval, we believe we will be able to further accelerate its growth going forward, as you can see in this graph. Moving on to slide 23 on Regilem. So we believe that the end of the COVID-19 pandemic will offer an opportunity to relaunch innovative brands like Regilem and when, obviously, access to healthcare professionals by both patients and sales representatives is normalized. For the majority of products launched or still in launch phase around the COVID pandemic, physicians have been obviously very cautious and generally more reluctant to switch their patients to new drugs. especially in therapeutical areas with difficult to manage patients such as schizophrenia. This therefore limited substantially the potential and launch object for this product. During this last month, we've been preparing the ground for the relaunch of a product on the day after the end of COVID by repositioning the brand around both negative and positive symptoms and strengthening our network of local advocates and key opinion leaders. as well as expanding the opportunity into new markets like Greece and Austria, where Regida is expected to be launched later in this year. As a result, we do expect an acceleration of Regida's growth through the forecast period, which could be boosted if we manage to unlock the access also in France and UK, and which is actually not represented in this plan and should be considered as an upside to the current numbers. Moving on to the next slide. So before we move to rare diseases, We tend to seldomly talk about key products in our O2C portfolio, and we wanted to share a success story of Proxtable Cleveland Oil, an asset that has seen continued growth in Central East in Europe and Turkey since Recordati acquired it, growing from a brand with 9 million in sales in 2011 to just over 30 million by 2019-20. Through the development of line extensions and omni-channel approaches leveraging DTC investments, we are confident to reach more than 40 million euros by 2023. This is a success story that we expect to replicate with other OTC brands across our portfolio, as I mentioned at the beginning of my presentation. In conclusion, our diverse portfolio in SPC has weathered COVID-19 pretty well, we feel, and is set for growth across all markets and all categories over the coming years. Providing Recordati with a robust and resilient platform to build on further growth, fueled by more creative acquisitions and new in-licensing deals that fit with our proven commercial capabilities and geographical footprint. While we bring in fitting video opportunities, we will continue to focus on accelerating growth through commercial focus on selected assets like Eligard, Regila, RS1, and some selected OTC brands. and target the promotion of activities aimed at sustaining legacy brands across all countries, especially those particularly sensitive to promotion. So moving on to slide 25, or actually let's just move to slide 26 to take you through our rare disease business unit outlook. So first of all, as many of you know, rare diseases is an area of still significant medical need. We've only 500 of a total 7,000 designated conditions having approved medical treatments. Thanks to advancing sciences, both the diagnosis but also the treatment rates are increasing, supported also by supportive legislation that incentivize investment and innovation in this area through different initiatives both in Europe and in the US. It is thus an area with very strong growth fundamentals. A market expected to grow double digit over the next years from an estimated 138 billion in 2020 to over 230 billion by 2025, and which therefore offers plenty opportunities for growth for an established player like Ricordati. Next slide, please. 27. Ricordati has a long established presence in rare diseases. starting with the acquisition, obviously, of Orphan Europe in 2006, and then the U.S. rare disease business from Lundbeck in 2013. We have a growing global footprint, which currently encompasses North America, EMEA, and key markets in South America, Australia, Asia, and Japan. But we have an ambition to expand further in other geographies in order to become a fully-fledged global player in the field. Our legacy portfolio is mainly concentrated in metabolic diseases. For example, products that fit in the area are carboglu and cystidrox. And in the more recent times, as you all know very well, we have entered the endocrinology-therapeutical area for the acquisition in 2019 of the rights to Signifor, Signifor-Lar, and Isoriza from Novartis. The rare disease space, we also pursue innovation by investing through our own research into potential new treatments for some rare and ultra-rare conditions. If you can move to the next slide, 28, please. So, in more detail on our key priorities and a three-year outlook for rare diseases. We see potential for record-active rare diseases to grow at a CAG of around 15% through 2023. We have a large portion of that growth coming from our endoportfolio. Our list of priorities is extensive, but I want to focus on a few that are critical. We will continue to drive the uptake of Isturiza while we're still growing Signifor in the respective primary indications of Cushions and Acromegaly, but we will also continue to grow Ledaga in EMEA and Juxtapid in Japan, and we will continue maximizing new opportunities in North America, especially Cystidros and Carboglu, newly granted indication in organic acidemias. While we're heavily investing in our growth of our organic portfolio, we're also committed to growing record-active rare diseases through BD and M&A activities in order to reinforce our global portfolio and presence in the market. Regarding the revenue outlook, all regions are growing. North America is benefiting from the strong uptake of the end-of-portfolio, and the decline of Panamitin will also be offset by the new product launches uptakes and new indications expansions in the metabolic portfolio that I mentioned before, being Carbaglut in organic acidemia and cystidrops. The rest of the world is maximizing opportunities in newly opened markets, including Juxtapel in Japan, as mentioned earlier. With regards to EMEA, we expect to accelerate further from 2023 onwards, possibly to Easter Eater reimbursement approval, with growth of Endo, Bledaga, and cystidrops, and some slowdown of Carbaglut. Finally, as you can see on the bottom of the chart, we forecast the end-of-portfolio doubling during the planned period, doubling in size during the planned period. So if we can move to slide 29, there's more focus on the end-of-franchise. So if we take a deeper look at the end-of-portfolio, Signifor and Istorizo represent a significant opportunity for patients suffering from cruches and acromegaly. In order to maximize the potential of these assets within the reproductive rare diseases, there are several critical success factors that we need to achieve. Let's begin on the left of the slide with Signifor, on which we plan to grow in acromegaly by accelerating the step up from first generation somatostatin analogs, but also continue to put new cushion patients on therapy, particularly ones that can benefit from tumor shrinkage. Regarding Isturiza on the right, we plan to differentiate the product to establish it as a new standard of care for Cushing disease in the US and syndrome in the EU and Japan. We're also putting all initiatives in place to ensure that we have the appropriate level of access for patients to receive Isturiza, not just in the US but also in the EU and the rest of the world. Finally, all this comes down to the execution by our country teams through strong engagement with key OLs and fault leaders and, of course, through the collaboration with patient advocacy groups, all of whom have proved very supportive since the launch of the product. We can move to slide 30. We will give a bit more insight on our expectations for the end of the franchise. We'll continue on this topic. So taking all this into consideration, we expect that our global end of franchise will deliver between 80 to 100 million in incremental net revenue by 2023, exceeding 200 million in net revenue by the same year, or at the end of the plan period. Most of the growth will come from Mr. Reza, but we also expect significant global net revenues to continue growing by around 10% per year, with our ex-US EU region growing by more than 50%. Understandably, there has been a lot of interest in better understanding the stories of early uptake by all of you. And while we continue to want to be cautious in disclosing too much information, since we deem it to be commercially sensitive, we thought we would provide some insight on the traction to date where the launch is most advanced, being the U.S. On the right side of the slide, you can see the very positive stories of patient uptake we have in the U.S. from launch last year in May until the end of quarter one 2021. where we have close to 200 active patients on therapy, and we expect the number of patients receiving treatments in the US to exceed 500 by 2023. Further momentum will come from a launch in Japan, expected in the second half of this year, and for reimbursement in Europe, which we will start seeing in key markets in the second half of this year and the first half of 2022. Our long-term view remains for Istorito to achieve a peak-year sales estimate of between 300 to 350 million euros, and with further potential outside beyond the planned years, from the expansion of the indication to Cushing syndrome in the U.S. and the expansion in new territories globally. You can move to slide 31, please. So finally, on rare diseases, here is some additional detail around the other key products in the record active rare disease portfolio. Obviously, we have a very important franchise in metabolic diseases, like I mentioned before. And here you can see on the right-hand side of the slide some of the key assumptions underpinning the planned period product performance. As I mentioned before, this portfolio represents a significant portion of the record healthy residues revenue, so I think it's worth mentioning that we expect to continue growth of several of these products over the planned period, including CarbonGlue in the U.S. and SysDrops both in the U.S. and in the U., Jaxapine in Japan, and Ladaga in EMEA, like I mentioned before, more than offsetting the erosion of pandemic in the U.S. Overall, our Red Disease business offers a solid and diversified portfolio with a global reach and demonstrated capabilities established over a number of years, making Recordati Red Disease also a strong partner of choice for innovative companies and research institutions investing in new therapies. We are committed to continue growing the share of our business in Red Disease as we introduce new and innovative treatments for patients affected by these very serious conditions. So moving on to slide... I'd say to slide 33. So having covered our two businesses, business units, and specific expectations and priorities for our existing portfolio, I will now briefly cover the BD and R&D areas to explain how we plan to keep using them to further enhance our business over the coming years and long term. So starting off with R&D, which as I mentioned when describing our business model is an era where we have historically made and will continue to make selective investments. Our SPC historically, the focus in SPC, historically the focus of our R&D activities has been primarily on life cycle management through formulation or indication expansions. With more clinical work done on red diseases side with our own portfolio projects focused primarily on the ultra-red conditions. Following the recent deals, we do have a number of important projects on both areas of our business. either directly or for our partners. On SPC, the key ones are obviously around Aliguards, with the development of a new, easier-to-handle device, where we are on track for regulatory submission by Q4 of 2021, and we have an approval expected by the second half of 2022. We clearly have also ARDS. We expect to engage the EU authority, regulatory authorities, on the files submitted by Q3 of 2021. We have an approval and launch expected by late 2022. In addition to this, also in SPC, we have a pediatric investigation plan ongoing for pediatric indication extension for Rheagyla, and also we are also looking to develop further our probiotics portfolio. On the other side, on Rhecordati Rhe disease, this focus is clearly on continuation of studies supporting signiforin and historiza that we inherited from Novartis, and supporting entry into new territories from a regulatory perspective, while finalizing a plan to engage with the FDA on the potential indication expansion in the US. We have two clinical stage programs, always in the rare disease space. One is MT8 for neurotrophic keratitis, which is in phase one slash two, started with phase patients enrolled, and we expect a study readout by second quarter of 2023. And also we have the maple syrup urinary disease product, which is expected to be filed in Q4 of 2021. Moving on to BD, I think that it's important that when we plan for the future, it's always a good idea to look at our history. In this chart, you can see clearly how our Recordatis BD track record is an integral and fundamental part of our development history. We selected 2007 as an entry in the rare disease business as an ideal starting point for this slide, even if the BD journey of Recordati started even earlier in the late 90s, when the group started to reinvest cash flows generated by Lurken ATP for the initial geographical expansion in the key Western European countries. Since 2007 and the acquisition of Orphan Europe, we've completed more than 30 transactions, both accreted and growth. both in STC and in rare diseases, with a total investment over 1.8 billion. And throughout the period, we have never stretched our net debt EBITDA ratio. Having in mind our history, in the next few slides we describe what we plan to do for the future, which is very much consistent, as you will see, with our development pathway and consistent with our already disclosed strategy in 2019. So moving to slide 35. Starting with SPC, we will continue to look actively for licensing and acquisition opportunities, and we will continue to pursue the right mix of the innovation, immediately accretive material assets with turnaround potential, and OTC brands. Also, we will continue to invest preferably in commercial or near-to-market opportunities. We do not plan to further expand our geographical reach in the short term, but we would position ourselves as a regional partner of choice. leveraging on our commercial platform and proven integration capabilities. Moving on to slide 36, which pertains to rare diseases. In this space, we will continue to look actively for licensing and acquisition opportunities, positioning ourselves as a worldwide partner of choice for development and commercialization of rare disease products. While our preference remains for late-stage opportunities, we are also keen to look at early-stage assets for Recordati Red Disease, partnering with other red disease companies or research institutions. We will focus on our main therapeutical areas, but at the same time, we will remain opportunistic to explore different therapeutical areas leveraging on our solid experience in the red disease space. Finally, I will leave the floor to Luigi to take you through the core assumptions and drivers and targets for our three-year plan. Please, Luigi.

Thank you, Andrea. And on slide 38, you'll see a sort of a summary of key assumptions. And obviously, I will not try and summarize everything that Andrea went through. Hopefully, we've given you some good color on both the key drivers of our current portfolio, but also the areas where we expect to focus and will continue to focus our efforts from a BD and M&A perspective. As you will have seen, we expect a good underlying growth in both businesses, despite FX headwinds, which we've assumed around 1.5% per annum built into our forecast, with, as we said, no material loss of exclusivities expected in the period. And, of course, we will continue to complement our current portfolio with M&A, MBD, following a proven successful model and strategy. And the share of rare disease as a percent of the total business that we expect to continue to grow from today 22% of revenue to over 25% of revenue by 2023. Now the exact split clearly will be subject to the type of deals that we will do. And as we've consistently said, and as Andrea articulated, we are committed to continue investing in both of those businesses. We expect margins to stay around current levels of 38% in terms of EBITDA and 28% on adjusted net income, reflecting our intent to continue investing behind the growth opportunities particularly those that will materialize post-COVID. We, of course, also expect to maintain the strong cash generation profile of the group with free cash flow of around 100% of net income over the period. of which we expect 60% per our dividend policy to be paid out and the balance being available for reinvestment in the business. Thanks to the strong cash generation of the group, we expect to achieve the objectives that we have set out with a net debt to EBITDA leverage ratio to stay between 1.5 and 1.8 times And clearly, again, here providing a small range, clearly it will depend on the timing, the time, and the structure of the deals that we will do over the coming years. But as we said before, allowing for and with the flexibility for that to temporarily increase up to – a maximum of three times for really high quality opportunities, which is consistent with the guidance we gave in 2019. So then turning over to slide 39, which summarizes clearly the key figures, we're reconfirming obviously the guidance for 2021, which is unchanged for this year. And for 2023, including additional M&A and BD, which were built into the plan, we aim to achieve revenue of between $1.92 billion, which at the midpoint of those ranges would deliver a CAGR of over 10%. EBITDA of between $720 and $760 million. Again, a CAGR of around 9%. and adjusted net income of between 530 and 560 million, with a CAGR of around 10%. And I'll now hand it over to Andrea for some closing remarks.

So if you can please move to slide 40 of the presentation, which sums up the financial projections and key takeaways. So in conclusion, hopefully we have given you a good overview of the objectives we have set for the business for the next years. and the key assumptions and drivers underpinning them. In summary, we aim to achieve a growth-based growth across both of our businesses' current portfolios, with growth of 6% CARG in SPC, half of which thanks to the contribution of Aligard, like we mentioned, and a return to volume growth post-COVID of the rest of the business, and 15% CARG for rare diseases with significant growth of our end-of-franchise, but not only. We aim to sustain a high level of profitability with EBITDA margin of around 38% and adjusted net income of around 28% of revenues, reflecting also continued investment behind our growth opportunities. We plan to continue with a strong track record of turning a substantial part of those margins and profits into cash, with free cash flow to remain on average around 100% of the consolidated net income. We maintain a clear capital allocation policy with dividend payout of 60% of consolidated net income and the balance of the free cash flow reinvested in the business on both growth and accretive deals in both parts of the business. And we aim to preserve a strong balance sheet, like Luigi mentioned just a moment ago, with a net debt around current levels of 1.5, luxury to fluctuate between 1.5 to 1.8, depending on the timing, the structure, and the type of deals being, again, growth for a creative, but really to go up to a max of three times for really, and I underline, really high-quality opportunities. So moving on to the last slide of the presentation. So finally, before opening to Q&A, In recent times, we have also worked to strengthen the team in recent time and years, not only obviously across the organization, but also at top management level to obviously ensure the efficacious management of our growing and more complex organization, and in order to drive more effectively towards the achievement of the goals. So with me here today, in addition to Fritz Quindel, whom all of you know, and is currently the group general manager. And there is also Corrado Castellucci, who's the head of our rare disease business and has been so for many years. Obviously Luigi La Corte, our CFO, group CFO since 2019. But also joining us today, also Scott Pescatore, who joined the group in February 2020 as head of operations for Recordati rare diseases. joining from AstraZeneca, and before then, having spent many years at Novartis in the rare disease division in Europe, with a good and deep knowledge of our endo portfolio. And finally, but not least, Alberto Martinez, who joined the group in January of this year to head our SPC business, joining from Mundi Farm, where he held in his latest role that of President and CEO of EMEA. So having concluded our presentation, I think we can move on to the Q&A session. Thank you very much for listening.

Excuse me. This is the Coruscant Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Martino de Ambrogi of Equita. Please go ahead.

Thank you. Good afternoon, everybody. The first is an obvious question on the life-for-life growth issue. In the previous plan, I know it's not unusual for you to include acquisitions in the long-term target, but in the previous plan, you presented a 50% organic growth, 50% coming from acquisitions. Is it still the case, 50-50, or based on the existing portfolio, you have more visibility on the portion related to the like-for-like growth? And the second question always on the guidance, just to have an idea where R&D costs are envisaged in your 23 targets, or what's the range over the three-year period. And the third question is on just a clarification on what do you mean for acceptable valuations In your slide number 38, when you talk about M&A, you underline acceptable valuation for M&A. So, just to understand what you mean in the current market environment.

Okay. Thank you, Martino. In terms of like-for-like growth, I mean, it kind of depends on how you consider Eligard. As Eligard, that was not in the 2020 base. So if looking at it on a sort of consistent base with how you would have looked at it in 2019, I think that 50-50 would still apply. And hopefully we've given you quite a bit of sort of color on the drivers of the growth of the portfolio, which we already have today, to be able to get a sense of the growth of the current portfolio. With regards to R&D, you know, we'd expect R&D to be between 10% and 11%. Now, don't forget, you know, close to over 40% of our R&D cost is actually amortization of licenses. So it will depend also on the type of deals that we do with. An acquisition with goodwill, which is not amortized, obviously will not add to that. If we acquire product rights, which are amortized, you know, clearly the R&D line... will be on the higher end of that range. I think acceptable valuations means we'll continue to be as disciplined as we've always been. I don't know, Andrea.

It means keep our good discipline in not overpaying for acquisitions, whatever they may be. So this has been part of our way of doing things until now, and we're not planning to change this. So clearly every deal, a growth deal, has different multiples from an accretive deal. but clearly every case is a different case. So the main kind of point is discipline and not overpaying. I hope that answers your question.

Yeah, thank you. Just a follow-up for the first question, Luigi. 50-50, is considering Heliguard as M&A or organic?

No, if you were comparing it to the guidance, which broad guidance, which was given in 2019, and what I'm saying is if you're doing it like that, then you'd have to take into account that the 2020 base that the CAGR is built on obviously didn't have Eligard in that.

So if we include Eligard, which is in the pocket today, you have more visibility than the 50%. Yeah, of course. And if I may, a last question on the strategic optionality. I clearly understand it is not an issue today, but would it make sense in the medium term to separate the rare disease business through a spin-off, a separate listing, a merger with another to become larger? I don't know. Strategic optionality on the rare disease is something that could be taken into account.

At this moment in time, we believe that, you know, keeping the two businesses combined is fundamental for the development of both. And I think that also for rare diseases, you know, having the strong cash generation generated by SPC is a major asset for rare diseases because it allows us, obviously, to be more ambitious and invest in a more ambitious way on the development of the part of the business. So today, you can never say never, Martino, but, you know, today we're not planning and we're not even remotely thinking about something like that.

Very clear. Is there any size, ideal size, for the rare disease business to think about it?

No, I think we cannot generalize on assumptions around size. I mean, it depends on the opportunity. We look at a lot of opportunities. We get new opportunities all the time. Today, I wouldn't kind of give you a whole part number for size around opportunities that we look for rare diseases. Depends if it's product edition, it depends if it's a portfolio, it depends if it depends a lot. So every case is different and gets measured and weighted ad hoc. Thank you. You're welcome.

The next question is from Joe Walton of Credit Suisse. Please go ahead.

Thank you. Firstly, can I say what an excellent presentation I thought it was. You've really set out the parameters of the company to make it a lot easier for new investors to understand your company so well done. My second, now my four questions please. I have two product ones and two more strategic ones. So the product ones, the first one is on Isterisa. How confident are you that you don't need more studies in order to be able to extend the indication to Cushing's Syndrome in the US? I believe you felt in the past that you haven't needed those but you are still going to have a discussion with the FDA, although not until next year. So just a little bit on why it's taking you so long and what the risks are and what you could be asked additionally to do. And perhaps if you are lucky enough to be able to file with what you have, what the peak additional sales might be. My second question is on Richelia. You've said that the UK and France is not in your plan. It's an opportunity to you, an upside opportunity, but you need to be able to get a good pricing there. I wonder if you could just talk about some of the positives and negatives so that we can try and handicap the likelihood that you would be able to get that within the planned timeframe. And then my strategic questions, one of them is I think a little bit mean, but I'll try it anyway. So looking back in 2019 at what you were expecting to be able to do in 2021, clearly it was about 1.7 billion. You're coming in quite a bit short of that, and I appreciate there's been a massive pandemic in the meantime. But if we were to characterize crudely the miss there, would it be that you haven't been able to find as many acquisitions as you had hoped to be able to do over that timeframe. And looking a bit more forward, I wonder if you could talk a bit about the balance of your M&A objectives between getting new specialty type products to go into your rare disease franchise and buying tail assets, which are immediately accretive. And if you could just talk a little bit about the pricing, the level of opportunity that you have in that, that would be very helpful for us. And my very final question, and I apologize for taking so long, just looking at R&D. As you've said yourselves, your R&D at 10% of sales, I mean, that's low by industry standards, particularly low for innovative pharma companies by industry standards. And yet within that, you've got a high level of amortization. So looking forward, Could you tell us a little bit about what your objectives are in terms of building up a genuine development franchise or development capability so that you are more able to buy in, let's say, mid-stage assets and finish them off for the market rather than being somewhat more restricted perhaps to late-stage assets like Isterisa, which was just ready to roll? or tail assets. There's a whole sort of section in the middle which you don't seem to be able to address at the moment.

Thank you.

Okay.

Maybe I will let Scott Piscatore take the first question, Joe, on Easter ESA regarding the indication expansion in the U.S.

Good afternoon, everybody, and thanks for the opportunity. So it's always been our plan to have a possible label expansion to the U.S. for Cushing syndrome. Any sort of peak opportunity or upsides in the plan, we won't be sharing the details, but it would fall outside the planning period. As you mentioned, we don't have any current timelines for the approval of the Cushing syndrome indication because we have to meet with the FDA first. We have a robust data package that we could bring to the FDA, but first we need to understand exactly what the requirements would be in order for us to achieve that label extension. One thing I can say though is that we don't expect to start any new clinical trials to generate that data. But, you know, data generation through real-world evidence and another means would be our proposed strategy for any additional data that would be needed.

Okay. Regina, I will let Alberto Martinez take on this question.

Thank you very much. Good afternoon, everyone. On your question around the opportunity for a dealer in UK and France, I'm afraid the situation in France is difficult and it's unlikely to get a reimbursement from a realistic perspective. So I don't think we should consider that as an option. However, we are actively working actively working on it and continue to work on it with the French authorities and certainly will not give up for the patients with schizophrenia in the French market. In the UK, we are in the market and we are actively promoting. However, we face significant hurdles in terms of access. The team is rethinking and revisiting the opportunity there, looking at new ways of approaching the promotion of the product. and lifting the hurdles that we're facing from a market access perspective. I would say the options in the UK to improve the position of Riajila are somehow more positive than those in France as a potential upside. But we have been prudent and cautious in our projections for this product.

Yeah, exactly. I mean, so let me reiterate what I said before. Just to reiterate what Alberto said, that we did not build this in our forecast. So the UK and France, for Agida, are out. This is important. France, obviously, we all know that it's an extremely tough market, market access-wise. The UK, we are on the market, like Alberto said, but it's just a matter, let's say, the penetration of the different mental health trusts has been taken longer than expected. but we're obviously working on it, and slowly we are gaining access to them, and so the uptake is slower than what we expected, but we will get there eventually. Regarding the 2019 Objective 1.7, we can respond, me and Luigi, together, I guess. I can tell you that for sure COVID had an impact, I think, obviously, I don't remember, honestly, the effects, the impact that we had in our plan, but it's probably more or less aligned. Clearly, we have also, we've had other headwinds within the business.

Regarding the M&A, I'd like to... No, I think, Joe, if you do the math, if you take in the 2021 numbers, Eligard and the contribution we've had from the Endo franchise, I think you'll see, and plus the other bits and pieces, the smaller bits and pieces with... we've done, I wouldn't say that it's been a sort of a shortage on M&A. I mean, at the end of the day, as you said, I mean, unfortunately, no one of us had predicted the market conditions which unfolded since the beginning of last year. That's really the key driver of the variants. And, you know, very shortly after the 2019 plan was announced, the deal with Novartis was announced. right now with that slightly different position, we've just in the last couple of months, the last few months, announced the deal with Tolmar. So again, which is why I'm saying it's very difficult to compare that sort of split in 2019 versus what may be the sort of split now. I hope that makes sense. On the R&D?

No, it wasn't on the R&D. It was a balance of objectives. Joe, if I recall correctly, the other question was

You wanted more insight on how we build, if I understood correctly, our M&A component or business development component in our numbers, our 2023 numbers between... It's the balance between older products, tail products, which are immediately accretive, and buying more specialty type products, which may take a little while longer. I think we're trying to think about how much money you're likely to need to spend to get to your objectives and it's relatively easy to work that out from the tail point of view but I'm assuming that you're also keen to do more deals that will get you a product at the beginning of their life cycle rather than at the end of their life cycle.

Yeah, and I think you've said it right, Joe. I think in terms of the way we thought about the target and the overlay, I mean, if you look at the last five years, we've done on average between 200 and 250 million euros of BD. You know, that has not been sort of consistent. I mean, some years we did north of 300, some years we did less. And we built our sort of targets around that. And the leverage assumption is consistent with this. And, of course, within that, we're aiming to do both growth deals and accretive.

So we gave ourselves an objective of additional growth, but... we don't know this moment exactly where that growth is going to come. We clearly have ideas of where we want to go. We want to pursue growth in rare diseases with growth deals. But at the same time, we also want to keep on, you know, sustaining and developing, you know, with accretive deals, our SPC business and not only. It's a mixture, so I think you need to take the number, you need to take, you know, our range of, you know, predicted EBITDA kind of, let's say, range, and obviously of the net EBITDA to the net debt, and calculate from there. I mean, but we don't, we don't, we're not going to get a further kind of insight in this. I mean, it's impossible to do.

Thank you. And on your question around R&D, I mean, you're right. I mean, I don't think we've ever sort of pretended it to be otherwise, that we're not a sort of company which has, as part of its business model, a significant investment in R&D and pipeline on a cash basis. As we set out on slide four, we actually sort of look to take selective investments in R&D. And whilst, as we said, we are open to opportunities which are in late, potentially mid-stage development in rare diseases. Now, rare disease is also an area where there's not a lot of difference between sort of mid-stage and late-stage. We're certainly open for that, and we do think we have the capabilities for that. If you just look historically at our track record over the last 10 years, the growth has been both sort of on-market and BD-driven as opposed to products coming from our R&D pipeline. Hope that makes sense and answers your question.

Thank you. Next question, operator. Yes, the next question is from Casey Arikarla. of Goldman Sachs. Please go ahead.

Thank you, everyone. Thanks for taking my questions. I have a few, please. First one, if I look at your specialty division, you have now built a sales force for CNS with Riagela and for Urology through Eurorack and Ediguard. As you think about in licensing strategy for this division, are you looking at assets where you already have a presence and want to build on the operating leverage? Or are you focused on also expanding into other therapeutic areas within specialty? That's the first one. Second one, what is your view on incremental pricing pressure in Europe as economies come out of COVID? Is this something that you have incorporated in your business plan, please? Third one on China opportunity for the studies that you make it very clear that that is an upside and not in your business plan. I'm just wondering, uh, the driver behind that delay? Is this because you need to undertake additional trials to be approved in China or are there any other commercial hurdles for the studies that are launched in China? And final one, if you could just provide an update on the clinical projects that you have undertaken historically, be it retinopathy of prematurity or maple syrup urine disease. When can we expect clinical updates here and if you could confirm if there's any contribution from them in your business plan?

Thank you. I'll answer the first question, Casey.

So, regarding the SPC, you know, obviously, ideally, I mean, our objective is to reinforce and look for assets. Let it be in license, growth assets, or creative ones that fit with our current presence on the field, which lie within our areas of expertise. It goes without saying. We're also looking at urology, we're looking at cardiovascular, we're looking at gastrointestinal. And we're also obviously looking to CNS to some extent because clearly we've set up a structure to promote Reagila and we would like to build more critical mass and synergy, let's say, on the promotional targets with the addition of other products. However, let's always keep in mind that we always give some degree of opportunistic approach when we look at different assets deals. So we also look at other stuff. But we tend to focus more on areas, the answer to the question is we tend to focus more on therapeutical areas where we already have a strong presence, both on the field and in our, let's say, know-how.

Maybe on pricing, Casey, you know, we still at this stage do not see significant sort of more higher pricing pressure in Europe over the next few years. I mean, historically, over the last years on SPC, we've seen sort of price erosion of, you know, plus or minus 1% higher in years, slightly higher in years where we lost exclusivity. But we're on average for a total group, we may have gone up to two. And we don't see, you know, a wall of new price measures being taken. Don't forget, You know, pricing, reimbursement, the generic policies in Europe are still decided on a market by a country-by-country basis. They're not decided at a pan-European level. So we don't see sort of governments starting to act on that debt. So honestly, we're just not seeing it. I think I may have mentioned in some calls anecdotally in the past, you know, we've seen one – price reduction across the portfolio last year as a result of COVID being additional 10% discount in Spain on products which were going generic, which impacted pitavastatin. On the other hand, we've seen Italian authorities increase, you know, the level of healthcare budget and where pharmaceutical spend is sent as a percentage of healthcare, you know, that's allowed a higher ceiling for total sort of country pharmaceutical spend doesn't impact us significantly either way. But just to say, we're not seeing significantly increasing pricing pressure over the next years.

Next question was, I think, on China, right? Hi, this is Scott. I'll test the question and add some additional details on our expansion in China. And you're absolutely right. It's a key strategic priority for us moving into new territories. China offers a large opportunity for us outside of the planning period. Just to give you some additional insight as to what we've been doing so far, we hired a general manager who started in quarter one this year. And we also began, we approached an agency to begin discussing with the filing requirements for our products that will be launching there with the China FDA. So things are progressing there and we will continue to build out the organization as we also have opened a headquarters in Beijing.

So it's more to do with regulatory timelines and interactions with authorities. And the same applies to the FDA on the label expansion opportunity, which we've always said is an upside to the guidance that we've given, where the FDA clearly has quite a backlog following COVID as we understand it. So again, it's more to do with regulatory timelines and building a data package based on what we have and the evidence which we continue to accrue through you know, the use of East Teresa in the market.

Okay, I think the last one was on some timelines around our pipeline development, right, Casey? That's correct. You had a line straight into the field. You mentioned MSUD, the maple syrup, and MTA. So, like I mentioned for MTA, I mean, we're still in early phase. I mean, we're Now we're expecting a study readout of the phase one, phase two study. It's expected by Q2 2023, so it's towards the end of the plan period. And also when it comes to MSUD, we are expecting to file at the end of this year, but we're expecting an approval in the first half of 2023 approximately.

Just to give you a bit more kind of... In an MTA, I mean, it's fair to say, I mean, it's true for all studies, but even more where patients are rare. I mean, obviously, the pandemic is, you know, generating, has carried some delay in terms of patient enrollment.

We have to be honest. Absolutely. You know, recruitment of new patients for studies, you know, any clinical development study has obviously... been impacted quite negatively by the COVID pandemic, which is totally understandable, clearly. But just for a moment, our study readout is still planned for the second quarter of 2023. Then we'll update you if it might be still feasible going forward. Thank you. You're welcome, Chris.

The next question is from Rajan Sharma of Deutsche Bank. Please go ahead.

Hi. Thanks for the question. First one, you mentioned that you'd be comfortable going to kind of three times leverage for really high quality opportunities. So I'd just be interested if you could define what you see as a really high quality opportunity, perhaps a profile of a potential asset there. And then secondly, could you just provide your thoughts on CVC's intent long term in the business, given that they've been involved for every year now because you just have to give us an update on how you see that progressing going forward. And then thirdly, just on the BD piece again, the types of deals that you've talked to potentially doing, particularly in the rare disease space, are in high demand. So how confident are you personally in closing these deals and what advantages do you see the group having versus competitors in this regard?

Thanks.

So maybe I'll start with the CVC one to get that off the table. So, I mean, CVC has been investing in the company for approximately two years now, and honestly, they are committed to remain invested in the company for some years to come. I mean, they see a lot of potential in the growth potential of the company. They're very happy with their investment. The collaboration is excellent. with the management of the company. So I think on that, I can say that's what I can say on that. So I wouldn't add anything else. I wouldn't expect any substantial exit, you know, shortly or stuff like that from what I can say and see.

No, I'd rather understand. First of all, I look forward to connecting and thank you for starting to cover the stock. With regard to leverage, first of all, just to be very clear for those of you that may be newer to Recordati, I mean, clearly the guidance that we provided in terms of our revenue is not built on an expectation of three times. That's just to say that whilst we set our sort of targets on the basis of an estimated leverage of 1.5 to 1.8, we just want to make sure it's clear that we would not be constraining ourselves to those levels. if we find an opportunity which is compelling, a strong strategic fit, and generates value for the business. So it's more to speak to the flexibility that as an organization we have on the back of the results that we deliver in terms of both profits and cash flows. So I think that's how to think about it. And in terms of BD and being in high demand, frankly, that's, in our experience, nothing new. I mean, good assets have always been in competition. We have a very strong and established infrastructure in Europe on the specialty primary care side, which is appealing for many. We're not a newcomer to rare diseases. We've been in rare diseases for since 2007. We have established capabilities and we picked up as recently as 2019 two great assets from Novartis and I'm sure we'll continue to do so. And again, good assets have always been in competition from our point of view. And the track record of the company we'd like to think is... fairly robust in terms of executing on M&A and BD. I hope that answers your question.

Yeah, thank you very much.

The next question is from Katerina Czakalski of BlackRock. Please go ahead.

Hi, good afternoon. So you talked about your leverage target at the OPCO level. Do you have any information to the market about what your intentions are for the expensive bonds that are sitting at the Rossini level?

No, I'm sorry. We have nothing to do with the Rossini level sort of financing. You'd have to ask that question to Rossini. I believe in the Q1, when they sort of gave their update at the end of the year, they said they have no current plans, but we honestly do not have any insight into that.

Okay, thanks. The next question is from Isacco Brambilla of Mediobanca. Please go ahead.

Hi, good afternoon, everybody. Thanks for taking my question. I have three. The first one is a follow-up on the building block of your expectations in terms of turnover growth. If you take the midpoint of your 2023 target, so roughly speaking, €500 million simulated turnover growth, is it correct to assume that some 70% of this simulated growth is related to products which are currently in your perimeter and just some 25-30% coming from future M&As. Second question is on your target in terms of profitability. For a group going increasingly towards the more profitable segment of rare diseases, it is somehow counterintuitive to see EPDI margin target in line with one of the past targets. So, can you provide more color on the assumption on gross margin, which is embedded in your 38% EBDA margin target? And the last question is on milestones. Can you provide more color on the amount of milestones which is included in your financial leverage target as of 2023?

So, thank you for the question. I'm sorry if I disappoint on the first one in terms of, say, you know, a range is a range. And I'll not try and pick the midpoint of the range in terms of what, you know, assuming we achieve that, what of that would be, you know, from current portfolio versus BD. You know, we've given a range which is consistent with what sort of peers would do. and we've given also quite a bit of color on what we think the current portfolio should be able to deliver. Of course, it's never A plus B equals C. We're giving a range which is a composition of what we believe we will deliver through the organic portfolio and what we will deliver through BD, continuing to invest at a level that is consistent with what we've done in the past and going for both growth and accretive deals and without wanting or being able to exactly second guess over the next three years which ones we will do at what time and so on. I think you'll have to accept that that's where we will leave that one. With regards to profitability, I think we've said consistently that margins over the course of 2020 and also now over the course of 2021 are enhanced by the impact that COVID has by putting pressure on the top line, but at the same time, reducing our level of activity spend. And again, we want to make sure that and are reflecting through these targets the intent to continue to invest behind the growth of the business, particularly once market conditions will return to normal. In terms of milestones, I assume around 100, 110 million in each of 2021 and 2022. Of the 2021 number, As I said, we have already paid close to $50 million of that in the first quarter, being the milestones for Eligard and Flat Reel. So hopefully that addresses your question. Again, apologies if I'm mistaking with the guidance on the range.

Okay, no, that's great. Thank you.

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The next question is from Nicola Storer of Kepler. Please go ahead.

Good afternoon, Jensen. Thank you for taking my questions, too, if I may. The first one, I would like to come back a bit on profitability and the assumptions that on your business plan. I was wondering whether we can see during the plan period some operating leverage coming from Isturiza, meaning if you plan to have a higher profitability in 2023 versus the one you have today on that specific product and how this fits into your guidance. of the 38% margin. The second shorter one, on your net financial position target, how much buyback are you assuming in your 1.5, 1.8 time target? Thank you.

So, Nicole, we've never given sort of profitability by product, and so unfortunately we can't, we're not going to start doing that on Easter Eid. I mean, you know, of course, and as we did say, you know, there will be some growth of rare disease as percent of total thanks to the growth of the endo franchise over the period. We are committed to invest and grow both businesses, but again, we don't provide profitability by product. In terms of net financial position, you should assume a level of buyback consistent with the average of what we've done over the last years, which was really to cater to the management long-term incentive plan. We've not built into sort of those leverage targets, any sort of buyback over and above that, if that makes sense.

Okay. Cool. Thank you.

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The next question is a follow-up from Isako Brambilla of Mediobanca. Please go ahead.

Hi, just one follow-up from my side. For what concerns are licensed? Is there any kind of turnover from this product included in your 2023 target?

No, only marginal, to be honest, Nicolò. We've always said this would sort of launch sort of late in 2022. And so it has, and don't forget, I mean, in Europe, obviously, you know, launching is one thing, then you go through the reimbursement process. So, no, yes.

There's marginal sales and there's still investments, you know, launch investments, like it's normal for a product under launch phase. So it's actually, in a number, it's actually a negative impact, like it's normal for any product under launch, which also applies clearly to Istorita, which is still under launch phase.

Okay, it's very clear. Thank you.

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Thank you. Just a couple of questions again about your future investments. Are there any other countries where you'd like to move from, say, a distributor model to have your own footprint and are any of those sort of geographic expansions included over the next couple of years? What countries might they be? And also if you could tell us a little bit about your objectives in OTC rather than prescription. Do you see a difference in that? Do you want to be more involved in products where the patients pay themselves or more involved in government pay? And finally, because it's a market that's relatively important to you, but we don't hear much about from other people. I wonder if you could tell us a little bit about your view of the outlook for the Turkish market. Thank you.

So, countries where we're planning to move from a distributor, that's Turkey, for short, for rare diseases. Okay. Clearly, we're planning to enter during the course of the plan in China, but also that is gonna be a partial, it would be the start of the entry. And on SPC, I don't recall, no, we don't have any plans to move from our distributor. I mean, as we said before in the presentation, our plan is to remain present in the countries already present as now and be a regional player for SPC. Regarding the other question was?

On the OTC portfolio, I mean, it continues to be an integral part of the SPC portfolio.

We like the diversification, Joe, so we like keeping the diversification within SPC, between RX, reimbursed drugs, but also out-of-pocket RX drugs, OTX, OTCs. And we will keep on pursuing a mixture of BD activities around reinforcing all those areas.

And on Turkey, maybe I'll let Alberto say a little bit more in terms of sort of current dynamics in the field in Turkey. But fundamental view on the market longer term remains positive, both in terms of volumes And in terms of pricing, I mean, of course, the currency is wobbly these days, and we suffer from that, and Turkey is under some of the strictest restrictions that it's been on from a COVID perspective. Alberto, do you want to comment on the current environment there?

Yes, with pleasure. Turkey's been particularly these days affected with COVID restrictions. There is a current lockdown somehow hindering the ability of our self-force to access healthcare professionals. That is clearly distorting the activity, but the growth in the market, the demand remains our business remains very strong and our commitment to continuing to grow our business in turkey is intact and it's actually one of the large operations within spc in recordatic

And regarding pricing around Turkey or better currency issues, obviously, like we mentioned on slide 38, we have built a general minus 1.5% of FX headwinds, which clearly does not only apply to Turkey, it applies to the whole group, but clearly a component of that is attributed to Turkey, but we're not going to give that sort of detail. But no, like Alberto said, for us it remains a key market. We still see a lot of potential in growth in the market. We're happy with our size. We're not planning to do any M&A deals. I think we already have a very good critical mass, and it's working well for us.

And could I finally ask you, I think you said your maple syrup urine disease, you'd be able to file at the end of this year. but you wouldn't get an approval until the first half of 2023. Is there any reason why it's such a long approval period, or maybe I misheard?

I'll let Corrado Castellucci answer this.

Hi, Joe. What we are going to do for many posterior diseases is build a package based on real-world evidence. We will... file with it with that package but prior to that we're going to consult the emma and check whether this is going to be enough and we are not going to need more so this is pending on the impact the positive opinion of emma we are seeking to have a meeting with the agency before the end of the year and hopefully be clear through and have the chance to file at that point in time. And then the usual time lag for the approval through EMA.

So they say there's a bit of healthy caution also in this timeline, okay?

Well, it depends on the package.

Okay, but it depends on the package.

Thank you.

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For any further questions, please press star and 1 on your telephone. Gentlemen, there are no more questions registered at this time.

So thank you very much, everybody, for having joined our presentation today and for your very interesting questions. And have a good afternoon or evening, depending where you are. Bye bye.